Stellar Diamonds has signed a tribute mining and revenue share agreement with Octea Mining for the Tongo-Tonguma kimberlite diamond project in eastern Sierra Leone.

Agreements made in the deal would enable to carry out mining in the combined and contiguous Tongo and Tonguma concessions.

London listed diamond exploration and development firm, Stellar expects the deal to give it substantial near and long term cash flows.

Stellar stated that the Tongo-Tonguma diamond project hosts highly valued kimberlite ore bodies in the African continent on a dollar per tonne basis. It is expected to create the second largest kimberlite diamond mine in West Africa.

The capital expenditure for the first two years for modest mine development has been estimated at $32m which is inclusive of 15% contingency.

Stellar Diamonds CEO Karl Smithson said: “We are delighted to have signed these agreements with Octea which, subject to completion, will allow Stellar to build a single mine for the simultaneous commercial production from the contiguous Tongo (Stellar) and Tonguma (Octea) kimberlite deposits.

“The combined project has an initial 4.5 million carat resource which, due to the high grade (100cpht to 260cpht at +1.18mm) and high quality diamonds (US$209/ct to US$310/ct), is considered to be one of the highest value kimberlite ore bodies in Africa on a dollar per tonne basis.

Stellar believes that the mine has an estimated life of 21 years with production likely to be more than 4.5 million carats. The revenues estimated are more than $1.5bn.

Upon reaching full production, the Tongo-Tonguma diamond project is likely to generate $45m in revenue each year.

After Stellar recoups an amount equal to its capital expenditure and Octea has been paid an initial revenue share of $5m, the Sierra Leone diamond company will be entitled to 10% of gross revenues on diamond and other minerals extracted and sold. This amount will be after deduction the government royalty.

After five years of mine development, Stellar will make a one-off payment of $5.5m to Octea.

Also, on completion of the period, Stellar will buy a 50tph kimberlite processing plant from Octea for a nominal price in to accelerate production.